Fed’s Asset Purchase Tapering Could Commence Quickly After Decision

Fed’s Asset Purchase Tapering Could Commence Quickly After Decision

United States Federal Reserve (Fed) asset purchase tapering could commence quickly after a decision amidst the rising inflation rate that sent jittery to the financial markets.

Once a decision has been made to taper asset purchases, the Federal Open Market Committee could act quickly to put the process in motion to complete the process by mid-2022, minutes of the Federal Open Market Committee’s Sept. 21-22 meeting released Wednesday showed.

“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” the minutes showed.

There were some differences among the participants over whether the employment portion of the mandate had progressed enough to begin the process of tapering, with “a number” of participants suggesting that substantial further progress had been met, while another “number” of participants said that it had not yet been met at the September meeting but could soon if conditions evolved as expected.

The tightness of the labor force, evidence by the low labor force participation rate, was cited as a roadblock to a faster recovery in employment.

However, the minutes noted that there was an agreement that it will soon be time to withdraw some of the emergency accommodation put in place, with some noting that additional asset purchases at the current level will have no impact on the supply side issues affecting the labor market.

“All participants agreed that it would be appropriate for the current meeting’s post-meeting statement to relay the Committee’s judgment that, if progress continued broadly as expected, a moderation in the pace of asset purchases may soon be warranted,” the minutes showed.

The FOMC considered a plan to taper purchases of US Treasuries by $10 billion per month and mortgage-backed securities by $5 billion per month as a “straightforward” approach, but said that “in keeping with the outcome-based standard for initiating a tapering of asset purchases, the Committee could adjust the pace of the moderation of its purchases if economic developments were to differ substantially from what they expected.”

No decision was made at the meeting, but “several participants indicated that they preferred to proceed with a more rapid moderation of purchases” the considered plan.

…to Begin Tapering $120 Billion Monthly Asset Purchases Next Month

Fed appears likely to begin curbing the central bank’s $120 billion in monthly asset purchases that were implemented during the height of the COVID pandemic as early as next month with an eye to ending the program in mid-2022, minutes from its policy-setting panel’s September meeting showed Wednesday.

For more than a year and a half, the Fed has been purchasing $80 billion of Treasury securities and $40 billion in agency mortgage-based securities per month, saying they would remain in place until employment and inflation levels were closer to its targets.

If the FOMC decides to begin tapering the purchases at its next meeting on Nov. 2-3, the process could begin in the middle of that month or in mid-December, according to the minutes.

At the meeting last month, the committee kept its key lending rate at between zero and 0.25%, where it has been since March 2020. # Feds Asset Purchase Tapering Could Commence Quickly After Decision